Special Report: US Reverses Course On Patent Injunctions 20/10/2015 by Steven Seidenberg for Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)The Federal Circuit is no stranger to controversy. And recently, the court stepped in it again. In an important ruling, the court made it far easier for some patent owners to obtain injunctions against infringers. The ruling could promote patent litigation in many industries, boost litigation costs, and effectively undermine a key Supreme Court decision limiting the availability of patent injunctions. US courts once liberally issued injunctions against patent infringers. Under a legal standard created by the Federal Circuit (sometimes called the nation’s “patent court”), courts routinely issued injunctions against infringing products or services, unless the public would be significantly harmed by such injunctions (e.g., an injunction would prevent the public from receiving a badly needed medication). Barring exceptional circumstances, patent owners who requested injunctions always got them. That abruptly changed when the US Supreme Court handed down its decision in eBay v. MercExchange [pdf]. The high court rejected the Federal Circuit’s standard and held that in order to obtain injunctions, patent owners must meet the same legal requirements as plaintiffs in other civil suits. Specifically, the Supreme Court stated, A party seeking a permanent injunction must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. After eBay, patent owners found it much harder to get injunctions against infringers. And in some circumstances, obtaining an injunction seemed impossible. If a patent covered only a few small aspects of an infringer’s complicated product or service, the patent owner could show irreparable harm only by proving that “the infringing feature drives consumer demand for the accused product,” according to the Federal Circuit’s 2012 decision in Apple v. Samsung [pdf]. That language was echoed in other court rulings, and the meaning of these decisions was clear. “Some court decisions said the patent must be the primary focus of customer preference,” said J. Karl Gross, a member of Leydig, Voit & Mayer, in the law firm’s Chicago office. The courts adopted this standard for a good reason. If a patent owner were able to enjoin an infringer’s entire complicated product/service, simply because a tiny portion of the product/service infringed, the patent owner could demand royalty payments far in excess of the value of the patent. Because if an infringer failed to pay up, that infringer would lose the ability to market not just the infringing feature of its product/service, but the entire product/service. Thus injunctions, in these circumstances, would enable patent owners to unfairly leverage their patent rights. However, this test for irreparable injury – the infringed patent must drive consumer preferences – made it practically impossible for patent holders like Apple to obtain injunctions against rivals’ infringing smartphones. Smartphones can contain hundreds of thousands of patented features, and in Apple’s suit against Samsung, Apple alleged infringement of just three patents covering three minor aspects of the smartphone: a slide-to-unlock feature, a spell correction feature, and linking a phone number in a document to a dialer. Consumers were not buying Samsung smartphones primarily to obtain these features. Thus, the district court found, Apple failed to prove irreparable injury. This effectively killed Apple’s ability to obtain an injunction. Because without irreparable injury, the second factor for an injunction also went against Apple: the company could be made whole by monetary damages. Without irreparable injury, the third factor also went against Apple: Samsung would suffer far more if it was hit with an injunction than Apple would if it received only monetary damages. The district court found the fourth factor went against Apple, too, because an injunction against Samsung’s smartphones would impair competition and hurt consumers. Less Damage, More Injunctions The Federal Circuit reversed. In a contentious 2-1 ruling, a panel of the court rewrote the test for irreparable harm. The Sept. 17 decision in Apple v. Samsung [pdf] held that Apple did not need to show that its patented features “drive consumer demand for Samsung’s infringing products.” Apple could show it had suffered irreparable harm by proving merely that “a [patented] smartphone feature impacts customers’ purchasing decisions” – that the features “were important to customers when they were examining their phone choices.” The majority found that consumers wanted these features and were willing to pay for them, and that the presence of the infringing features had “a measurable impact on consumer demand” for Samsung’s products. This, the court held, produced irreparable harm to Samsung’s rival, Apple. So the first of the four factors favored an injunction. Moreover, since there was irreparable harm, the second factor supported an injunction, the court found. The third factor (balance of hardship) favored an injunction because Apple was suffering irreparable harm and because Samsung claimed it could quickly and easily design around the infringing features. As for the fourth factor, the Federal Circuit reinterpreted that, too. Adopting a pro-patentee position, the majority rejected the view that the public interest favored free competition, consumer choice, and no injunctions for patent infringement. Instead, the court declared that injunctions are “vital” to protecting patent owners’ rights and thus encouraging innovation. As a result, “the public interest nearly always weighs in favor of protecting [patent owners’] property rights in the absence of countervailing factors, especially when the patentee practices his inventions,” the court stated. In such cases – like the one now before the court – “the public interest strongly favors an injunction,” the court declared (emphasis in original). This interpretation of the fourth factor doesn’t fit well with the Supreme Court’s decision in eBay. “The Federal Circuit is putting its thumb on the scales in favor of injunctions, rather than applying a true neutral analysis of this factor,” said Gross. “That will be seen as counter to eBay, which tried to adopt a neutral approach on whether to grant injunctions.” The Federal Circuit’s interpretation of the first factor – irreparable harm – also tips the scales in favor of patent injunctions. This change, however, may not contradict eBay, because that Supreme Court decision left much uncertainty about what constitutes irreparable harm. “The decision in eBay was narrow in one sense: no automatic injunction for patent infringement. Beyond that, the Supreme Court was unclear,” said Prof. Arti Rai of Duke Law School. Broad Ramifications The Federal Circuit’s latest ruling in Apple v. Samsung will boost the costs of patent litigation, at least when a patent allegedly infringes only a small part of a complex product/service. In such circumstances, the litigants will want to show whether or not the infringed features have “a measurable impact on consumer demand.” That will require litigants to pay for studies and expert testimony on this issue. “We may see a lot more money spent on discovery,” said Gross. The ruling in Apple v. Samsung also will result in more injunctions against patent infringers. “More injunctions will be requested and granted, especially when the plaintiff and defendant are competitors in the same industry,” said Gross. It is less clear if the ruling will provide more injunctions to so-called “patent trolls” – also known as non-practicing entities (NPEs). These entities may find it hard to satisfy the court’s broader definition of irreparable harm. “Apple was able to establish it lost downstream sales because its patents played some role in consumer sales. NPEs won’t have that argument available,” said Gross. Apple also claimed that its reputation as an innovative company was harmed, because a competitor offered the same innovative features. NPEs often have no reputation as innovators, so this argument, too, may be unavailable. On the other hand, NPEs that license their patents to only one or two licensees in an industry may be able to convince a court that the loss of their licensees’ downstream sales constitutes irreparable harm. An exclusive licensee should be able to prove irreparable harm under Apple, so it could be intellectually awkward to deny that the same irreparable harm exists to the NPE licensor. Apple did impose another limitation on patent injunctions. “The court said that any injunction must be narrowly tailored. So you can’t get an injunction against an entire product if the patent covers only some small features in the infringing product,” said Meredith Martin Addy, a partner in the Chicago office of law firm Katten Muchin Rosenman. In such cases, the balance of hardship (the third factor) would weigh against an injunction. Apple had no problem with this, because it did not seek an injunction against Samsung smartphones and tablets. It sought to enjoin only the use of infringing features on Samsung’s products, and Samsung said it could quickly design around the infringing features. Yet what would happen in a different situation, where several small infringing features are used in a defendant’s complex product, and the defendant cannot easily design around the infringing features? The balance of hardship (the third factor) then would weigh against an injunction. Would that be enough to prevent a court from issuing an injunction against a patentee’s infringing business rival? If the infringing features affect consumer preferences, the first factor (irreparable harm) would favor an injunction, as would the second factor (adequacy of money damages). The fourth factor (public interest) strongly favors injunctions except in exceptional circumstances, according to the Federal Circuit. Unless the infringing product was vital to the public interest (e.g., a badly needed medicine), the fourth factor would support an injunction. So, even if the third factor strongly weighs against an injunction, would that really be sufficient to overcome the other three factors? There is certainly room for doubt. Depending on how it is interpreted, therefore, Apple could radically alter the availability of injunctions for patent infringement. Companies in high tech industries may once again be able to regularly obtain injunctions against competitors’ products/services. Auto makers, airplane manufacturers, and many other businesses that create complex products may similarly have a new ability to enjoin their rivals. NPEs may once again be able to threaten operating companies with injunctions – at least in some circumstances. Should all this occur, it would significantly undermine the Supreme Court’s decision in eBay. Injunctions would not be automatically granted, as they were before eBay, but the Federal Circuit’s latest ruling in Apple could significantly tilt the playing field in favor of those seeking injunctions. Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related Steven Seidenberg may be reached at info@ip-watch.ch."Special Report: US Reverses Course On Patent Injunctions" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.